Yesterday, the Financial Stability Oversight Council (FSOC) voted to release a money market fund reform proposal for public comment. FSOC Chairman and Treasury Secretary Timothy Geithner made clear that if, and when, the SEC is able to take action on the issue, the FSOC will suspend its work and defer to the SEC. The proposal includes three main options for reform:
1) Requiring money funds to float their NAV;
2) Requiring a capital buffer of less than 1%, combined with a 3% holdback requirement for accounts in excess of $100,000; and
3) Requiring a 3% risk-based capital buffer that could be combined with other measures, such as more stringent investment diversification requirements, increased minimum liquidity levels, and more robust disclosure requirements (the level of the buffer may be lowered in the FSOC's final recommendation if it can be adequately demonstrated that the other measures reduce the vulnerabilities of money funds).
The first two options largely mirror the plan set forth earlier this year by SEC Chairman Mary Schapiro. That proposal failed to garner enough support from the other SEC Commissioners to be publicly proposed. The FSOC unanimously voted to issue their proposal, with several members speaking out in support, including Chairman Schapiro. The full written proposal is available here. Comments are due 60 days after the proposal is published in the Federal Register.